A bear hug is a hostile takeover tactic in which a potential acquirer proposes to pay significantly more than the target firm is truly worth its stock in another company. The potential buyer generously offers to buy the business for more money than other potential buyers are prepared to offer.
This makes it more difficult for the target company’s management to reject the offer while also helping to eliminate the issue of competition from other bidders. The offer is typically made when the target company is not actively looking for a buyer because it is frequently unsolicited.
A Bear Hug’s Definition And Use In Business
The management of the acquirer submits a proposal to the target company’s board of directors because they believe the target business has value. Even if the target company hasn’t expressed any interest in being acquired by another business, this is still true.
It’s known as a bear hug when a business offers to buy another business at a price far greater than the target business’s market value.
Pros Are Outlined
Potentially advantageous for shareholders As previously said, provided that the offer is made at a significant premium, shareholders often benefit if a bear hug is accepted. limits the acquiring company’s bidders’ options Since other businesses might not be able to or desire to make a competitive bid.
It makes sense that an offer that values a company at a price far higher than the going market rate can serve to deter other businesses from making offers.
Prevents a confrontation with the target company It is the responsibility of management to increase shareholder returns. For this reason, it could be challenging for the target organisation to reject a bear-hug offer when it comes along.
Although a bear hug is an aggressive takeover attempt, its goal is to improve the financial situation of the target’s owners. In addition to the high offer price, the purchasing business may provide additional incentives to acquire the target. A bear hug can be an expensive purchase for the acquiring business, and it might be some time before the acquiring business realises a profit